The Faceless Assessment scheme, introduced in the Union Budget 2019, aimed at increasing the efficiency, transparency and accountability of tax authorities. As a result, it appears to be one of the most effective plans in the fight against corruption when dealing with tax authorities.
Measures like this are precisely what the country needs in these pandemic times.
With the whole world going digital, it is high time that the process of regulatory compliances has a 360- degree digital coverage. That means, in a business environment where accounts are maintained on computer systems, tax returns are being filed exclusively online, virtual invoices are being raised, etc., it seems almost unnecessary for the assessment proceedings to be carried out physically.
However, the effectiveness of this measure is only as good as its practical implementation. Let us discuss some of the measures proposed under the faceless assessment scheme:
1) Selection of cases only through the use of data analytics and AI
On the face of it, this measure appears to have been introduced to reduce the pressure on the taxpayers caused by certain tax officials.
However, some issues are a matter of worry. For example: Can the tax administration entirely rely on such tools to catch cases of tax evasion? Does the tax administration team have an adequate number of technically qualified professionals to use such tools effectively?
Furthermore, It has also been proposed to pick up cases for assessment, based on random allocation. So, will this result in unnecessary scrutiny for certain taxpayers (for example, salaried individuals), who have seemingly straightforward returns?
2) Abolishing of territorial jurisdiction
The abolition of the territorial jurisdiction might necessitate a redesign of the hierarchical structure in the income tax department that takes into consideration the proposed move to have a team-based assessment and team-based review. In the new proposal, each case would go through 3 different cities: Draft assessment order in City ‘A’, Review in City ‘B’ and finalisation in City ‘C’. The three teams located in the three different cities could each have separate findings which could potentially result in assessments taking longer than usual.
3) Elimination of physical interface with the tax department
The main aim of this scheme is to remove the need to visit the income tax department physically. While the necessary foundation to achieve this is already in place, concerned officials need to be trained well enough to make the best use of this infrastructure. Taxpayers who were going to the department physically for issues like old refunds due, rectification proceedings, etc. used to find it difficult at times to get hold of the concerned Assessing Officer (AO). With this new scheme in place, only with time, we will be able to weigh the efforts involved in reaching out to the Assessing Officer virtually.
4) Issuance of notices with Document Identification Number (DIN)
Just like auditors who have to generate a Unique Document Identification Number (UDIN) in respect of certificates issued by them, even tax officials will have to generate a Document Identification Number (DIN) mandatorily. This will help in the prevention of manipulation of notices and orders.
Despite the above measures, there could be certain situations where the physical presence of the AO will be required. Hence the faceless assessment scheme will not be applicable for::
- Cases involving severe frauds, significant tax evasion, sensitive matters and search matters;
- Assessments relating to international tax; and
- Assessments under the Black Money Act and Benami Property.
While this move is a step in the right direction to ensure that there is a ‘Minimum Government and Maximum Governance’, we will have to wait and observe how it is carried out practically.